The organizers at George Mason Law School inform me that the video of the event will be posted in a few weeks. Yes, it was great to have a chance to offer a few points directly to Prof. Harvey and Jesse Eggert at Treasury. Once the video is up, we can let viewers to decide who might be a flake and who is not.

Bottom line from the event is that it confirmed my sense going in of FATCA’s extreme political vulnerability and ripeness for repeal — if financial institutions (both US and non-US) and foreign governments would stop acting as, in effect, FATCA enablers. Most significant: Prof. Harvey, Mr. Eggert, and pretty much everyone admitted in substance that FATCA as written can’t be enforced. IGAs (intergovernmental agreements) are essential for the US to implement what would otherwise be an unenforceable regime. No one pretended that FATCA could be successfully enforced solely as a unlilateral and direct U.S. imposition. Either Washington will be successful in pressuring or tricking other countries into enforcing FATCA on themselves, or the whole scheme collapses.

As such, IGAs – such as the one finalized with the UK (though Parliament still needs approve it) and being negotiated with many other governments – are positively counterproductive for foreign firms and governments. They have the effect of rescuing FATCA.

But as I pointed out — and no one disputed — IGAs have another, unintended consequence: they repatriate FATCA’s costs to U.S. Under “original FATCA,” as enacted, American firms’ costs were relatively minimal, basically as a withholding agent for “recalcitrant” foreign firms, which would bear the vast bulk of the costs. But under the IGAs, similar obligations would be imposed on US domestic firms for reporting non-US residents’ data to the IRS, for transfer to foreign governments. (Indeed, under Article 6 of the “reciprocal” version of the IGA, the U.S. commits to achieving full reciprocity in data exchange with the “partner” country.) These costs – which would be passed on to American consumers – could be massive, since US firms will have to report on multiple countries, not just one. Not only will this be quite costly and invasive for American domestic institutions, it would be especially problematic for non-bank institutions (e.g., insurance companies, pension funds) that don’t routinely collect the kind of anti-money-laundering and “know your client” information banks do.

So Treasury faces a conundrum. On the one hand, FATCA can’t succeed without going down the IGA road. On the other hand, IGAs mean that FATCA costs that originally would be carried almost entirely by FFIs are now to be imposed here in the U.S. That changes the political landscape to FATCA’s detriment.

As IBS participants are aware, very little about any of this has appeared in the U.S. media. (And most of what has appeared are thinly veiled ads by compliance vendors – tax lawyers, accountants, etc. – who expect to educate their kids and retire on FATCA.) Americans only dimly perceive the looming threat to their privacy, pocket books and personal freedom. But if this were well-publicized through an active media campaign, that could change – and help set the stage for FATCA’s demise. But because U.S. interests are not (yet) sufficiently alerted to the this danger, I believe it is vital that non-US financial interests provide the catalytic initial support. Unfortunately, that has not yet happened. Instead (perhaps not fully appreciating that ours is not a parliamentary system) foreign firms are still begging their governments to negotiate with the Americans for relief — leading to the counterproductive IGAs.

As indicated on my site http://www.repealfatca.com, a place-holder for a campaign aimed at arousing U.S., there has only begun some pushback on FATCA based on repatriation of the outrageous costs FATCA would impose. IBS readers are of course familiar with the July 25 letter to Secretary Timothy Geithner from Rand Paul (R-KY) and three colleagues, just prior to the release of the “model” agreements. (Also, I thank IBS for bringing to my attention the letter from Rep Dave Reichert, with whom I plan to follow up, along with other Ways and Means Committee offices with whom I’m in contact.). Treasury’s answer to Rand Paul and his colleagues earlier this month is entirely inadequate and ignores entirely the Senators’ questions about costs, and other touchy issues. (At the George Mason event I argued about this with Mr. Eggert.) Treasury’s avoidance of talking about domestic costs is significant, as it flags a key, possibly fatal FATCA vulnerability.

The kind of pressure evidenced by the Paul-plus-three and Reichert letters could increase dramatically and be combined with legislative initiatives to stymie FATCA’s enforcement and help lead to its repeal. (Also, remember that we’re about to have an election, which also could change the landscape with respect to FATCA.) There is a standard panoply of techniques used in concert with lobbying Congress to achieve the passage – or repeal – of legislation. These include hearings, ordering cost/benefit studies (which never was done for FATCA), withholding enforcement funding, freezing Executive Branch nominations, and perhaps most importantly, blocking implementation of the IGAs as the “weak link” in the FATCA enforcement plan, combined with a vigorous PR campaign to “brand” FATCA as (this is only slightly hyperbolic) the worst law ever. But this requires a serious, sustained – and funded – on-the-ground Congressional lobbying and media effort. Simply writing letters to Congress explaining why FATCA is bad cannot accomplish the needed task, especially if they represent only the concerns of foreign (or for that matter, expat) interests.

We hear all the time that “FATCA is here to stay” – mostly, as I say, from practitioners with a pecuniary interest in a very expensive FATCA regime, many of them non-Americans with no experience with the US political system. But based on my experience, I am convinced repeal is a realistic outcome – if there is launched a campaign comparable to other projects for the passage or repeal of legislation. Unfortunately, while impacted firms (mainly foreign ones, but American too) have already spent millions sending pointless comment letters to Treasury and gearing up for compliance to the tune of untold billions of dollars in the aggregate, and millions per institutions, none has yet seen fit to commit a small fraction of this to exploiting FATCA’s manifest vulnerabilities.

Indeed, by point of comparison, there are significant examples of the sudden house-of-cards collapse of what had been considered unassailable initiatives, once an intelligent and active campaign to that end was launched:

a. The Medicare Catastrophic Coverage Act of 1988-89 (“Rarely has a Government program that promised so much to so many fallen apart so fast.” Unlike FATCA, the Catastrophic Coverage Act – which was repealed 17 months after it was enacted – had a clear and identifiable set of beneficiaries.

b. Dubai Ports World debacle of 2005-2006. (As it happens, I had a hand in killing the Dubai Ports World deal, despite the solid support for it from the White House of George W. Bush, Congressional majorities in both the Senate and House and Republicans and Democrats alike, and editorial support from publications including the Financial Times, the Wall Street Journal, the Los Angeles Times, the Washington Post, The Economist, and top commentators including Tony Snow, Thomas Friedman, Rush Limbaugh, former president Jimmy Carter, Senator John Warner, and Bill O’Reilly. In addition Senator John McCain stated he believed Americans “should trust the President on this issue.” In the end, they didn’t.)

Dramatic turnarounds of this sort aren’t automatic or easy. Nor is the outcome certain. But what is certain now, is that if a repeal campaign is not launched, Treasury will continue with its methodical campaign to pull country after country into IGAs and eventually solidify a “global FATCA” – an outcome that might have been averted with some active and intelligent opposition in the US.

That said, based on the observations above, there is enough reason to suggest that that in addition to spending huge sums of money on FATCA compliance – already described as a practitioners’ “gold rush,” especially for tax lawyers – devoting a comparatively small amount to seeing if this costly nightmare can be averted altogether. For large firm the difference between compliance and supporting a repeal effort could be one between hundreds of millions of dollars versus tens of thousands of dollars.

My guess is that FATCA could probably be repealed in about a year – before the most draconian regulations go into force – with an effort costing between $50 and $100 thousand per month. Obviously, the more money devoted to the effort, the greater the likelihood and speed of success. Even if a foreign interest takes the lead in launching the effort, a coalition of interests – including domestic American ones – is important. To put it bluntly, Congress will respond to concerns of costs inflicted on U.S. domestic interests, they are far less concerned about costs imposed on foreign interests.

This also relates to some criticism I’ve seen on IBS and elsewhere regarding my focus on costs to firms and not, specifically, the unfair costs FATCA imposes on (for example) expats and dual nationals in Canada and elsewhere, not to mention related issues stemming from American worldwide taxation. Short answer: I am interested in solving this problem. Like it or not, the fact is that the legitimate complaints expats have about FATCA and related impositions cannot get FATCA repealed – but the ones I have pointed to have that potential. Moreover, unlike individual expats, the impacted financial interests have the resources to support the kind of effort needed at cost far less than they are facing to comply with FATCA. To put it another way: if you are an expat or dual national in Canada or somewhere else, focusing on how FATCA unfairly injures you is not going to relieve you of that injury. Instead, you need to think of who you know in the banking, insurance, pension, investment, etc., industry, either in the U.S. or abroad, and suggest that they would be protecting their own interests (not to mention yours) by jumping off the IGA and compliance hamster-wheel and freeing up some resources to bringing FATCA down.

Two closing thoughts:

First: No doubt some will read this and say, “Sure, he tags tax lawyers, accountants, and so forth with lucrative motives, but isn’t he also just trying to drum up business?” Of course. But let me note that not only is what I am proposing far less costly than the truly obscene amounts that would be spent on compliance, the purpose would be to relieve what I sincerely believe to be a tragic mistake. One of the lawyers at the George Mason event, at the opening of the second panel, posed the relative costs of FATCA as a projected $1 trillion worldwide versus a projected recovery of lost taxes at less than $1 billion a year. It doesn’t take a math genius to figure out this is a bad exchange, since that $1 trillion will be spent on an activity that contributes absolutely nothing to the American or global economy other than compliance with the FATCA edict itself. In comparison, I would not be continually beating this drum (at the risk of “flake” characterizations) unless I believed I was offering the “right” product to the marketplace, not only from a business perspective but morally.

Second: As I mentioned in closing at the George Mason event, a few months ago a U.S. financial industry lobbyist in Washington told me that he thought FATCA would be repealed in the end, but it would follow the trajectory of the Catastrophic Coverage Act. That is, it would be pulled back after it had turned into a horrendously expensive global train wreck. My thought is, wouldn’t it be better to save the time and cost – not to mention the economic wellbeing of who knows how many individual persons – by undertaking that now, and not waiting until today’s foolhardiness had matured into tomorrow’s catastrophe?

75 thoughts on “Jim Jatras responds to Isaac Brock Society on FATCA”

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No intention to confuse. You and CH quoted: “There is still fiscal elbow room to slosh enough OATS out of the swill bucket to pacify most of the peons.”

But in the first place I wrote: “There is still fiscal elbow room to slosh enough ORTS out of the swill bucket to pacify most of the peons.”

What is really funny is that the phenomenology of that absolutely wrongheaded emendation resembles the mindset of serfs who see the reality that they are geared to see – and even go so far as to bend a reality which they may not understand to make it fit their preconceptions. In other words, someone who does not know what an ORT is thinks OAT makes more sense. Which it does, to them … but not to a swill bucket! Heh heh.

Oh, I see what you are talking about. Sorry. It wasn’t malicious. I didn’t focus on ORTs vs OATs, and just copy pasted from ConfH, and did not go back to your original. In ConferateH’s defense, I would say ORT, isn’t common usage, so I wouldn’t be too sensitive about the correction. It was innocent enough.

Thank you for posting the CBA’s letter to the IRS and Treasury from last May. I hadn’t seen it, and it does sound like at that point they were eager to embrace an IGA. I wonder what’s evolved since that letter where banking operations director Darren Hannah states:

‘Finally, I want to highlight the proposed intergovernmental agreement process that the U.S. Government has embarked on with several European countries and, we hope, with many others. As we stated in the comment letter, the CBA is a strong supporter of this process and would like to see similar arrangements for Canada and many other countries. The CBA and many other commentators have said that FATCA is, at its heart, an information sharing arrangement and therefore is best addressed on a state-to-state basis building on the tax information sharing mechanisms that are already in place.’

Re: “It seems to me that the only forces with pockets deep enough to fight FATCA in the method Mr Jatras suggests would be our respective governments. Who here would be interested in ‘Jatras bombing’ every Member of Parliament in Canada, when so many here have expressed that our government is merely a puppet for a great force?”

I certainly welcome “Jatras bombing” everyone you can think of in Canada, no to mention NZ, CARICOM, Australia (these countries especially, since they seem most enticed by the siren song of an IGA as salvation, misled by the British example.)

That said, certainly there are lots of other deep pockets that are already expending substantial sums in ineffective and even counterproductive (i.e., pro-IGA) activities and who could easily afford to drop a few dollars to help sink FATCA. After all, if TD can expect to spend $100M complying with FATCA (“TD resists U.S. plan to catch tax cheats”), and a range of £63 million to £126 million can be expected for each impacted foreign firm to comply (“10 Things You Maybe Don’t Know about FATCA”), couldn’t at least a few of them put up a small fraction – maybe one percent, even one-tenth of one percent – of the amount they expect to lose to take a shot at averting the danger?

The article under the headline above “TD resists U.S. plan” (not meaning to pick on that institution, just as an example) is highly instructive. You will see repeated references to “putting up a fight,” “join[ing] the fray,” and so forth. But when you look at what the named institutions and associations are doing, it all comes back to the same thing: they’ve “already expressed . . . concerns to US officials,” “doing [their] best to make changes,” etc. In other words, they’re making comments to Treasury and trying to negotiate a more reasonable regime. In my estimation, such efforts – which I’d characterize as seeking a tactical solution to a strategic problem: trying to make the FATCA iron maiden less uncomfortable – have many times over already consumed more industry expenditures than would have been required to get rid of FATCA altogether.

As you can imagine, I look on this with the air of a plumber watching his neighbor with the flooded basement, who insists on calling the electrician to fix the problem.

Regarding the very significant recent news that the FATCA timetable has been pushed back, note the horrified response of the established practitioners:

‘According to [one practitioner], institutions in Asia should not see this delay as an excuse to relax, but instead take a measured and cost-effective approach. “My concern is that institutions will see this and take their foot off the pedal, when in reality under the old timeline it was going to be incredibly challenging, and under the new timeline it is still going to be quite tough to meet the requirements given the level of change required. Our view is that the delay is welcome, however, financial institutions should use this opportunity to make sure they have a measured and cost-effective approach to compliance when under the previous timelines it was perhaps too rushed,” he says.’

Says another: ‘”We anticipate further developments in the area of classification over the coming months and years; Fatca is the start of this process, not the end point. With that in mind, firms should not take their collective feet off the gas on this issue. Instead, they should look to implement solutions that have the flexibility to support them now, and into an as-yet uncertain future.”’

Translation: “Oh my God – some of these companies might get the idea from the delay that they can back off on FATCA compliance! There goes the gravy train! No, no – believe us, FATCA is coming! We mean it! There’s no other solution! Get ready to comply! And pay no attention to that man behind the curtain down in Washington!!”

My take is a little different, it light of my earlier observations about IGAs as essential to FATCA’s success or failure. The IGA process is going slowly and unsatisfactorily for Treasury. They are hesitant to pull the trigger on imposing unilateral FATCA – which they know could precipitate a global financial crisis – until at least a handful of major countries (Germany being the most important right now, it seems) have signed on.

In short, as CF&P President Andrew Quinlan has indicated, this delay (as did the one from December 2011 to February 2012 in issuing the draft regulations) shows that FATCA is anything but inevitable:

“The continued inability of regulators to release final FATCA rules provides yet further evidence that the law was ill-conceived and should never have been passed in the first place. We already know that it will inflict higher costs on the financial industry than it will deliver in tax revenue, is driving foreign investment out of the US, and is pushing more and more Americans living abroad to renounce their citizenship, but now we can add regulatory uncertainty to the list of burdens.

“While foreign and domestic financial institutions are taking a beating, it’s ultimately the American people who will bear the brunt of FATCA. Consumers who engage in financial activities will face higher costs, and reduced investment will mean fewer jobs for American workers. Unfortunately, as this is a mess wholly created by Congress, only Congress can fix it. They must repeal FATCA now.”

Exactly.

But exhortations like CF&P’s, mine, and others’ are not enough to take advantage of this open window of vulnerability. Instead:

Governments (including Canada’s) must tell Washington in no uncertain terms they will not enter into any IGA on FATCA, nor will they allow extraterritorial penalization of their domestic firms, for which retaliatory steps will be imposed; and

Industry (including Canadian firms and associations) need to divert a small fraction of the funds they have been expending on, in effect, making FATCA more minimally tolerable but achievable and instead put some relatively small investment into repeal.

Back to bubblebustin’s “Jatras bombing” point: IBS participants are in a position to contact both government and industry (firms and associations) and urge these steps. I am ready to discuss with them a detailed media and lobbying plan for achieving the desired outcome.

I’d be happy to apply as much elbow grease I can to help to repeal FATCA, but to be blunt, it would have to end with that as OVDI has already done too much to deplete our retirement savings. The power I have is being a constituent of both the US and Canada. I certainly would welcome a discussion on how to go about influencing those who have the interest in, and the resources to fight FATCA. Unfortunately, and as you mention, those who wish to derail the FATCA gravy train, may also find themselves now up against those who stand to profit most from FATCA, the established practitioners

@Jim Jatras, I really appreciate your strong opposition to FATCA when almost no one seems to care. I’ve been contacting congressmen seriously, drafting legislation and meeting with congressional assistants in person, with the goal of abolishing citizenship-based taxation and various reporting requirements, including FATCA. I’m not a professional in this area like you are, I’m just doing this because I’m outraged by the whole situation and I feel that I can actually make a difference in this case, as I seem to have some weird aptitude for understanding tax law and I happen to live close to Washington, DC.

You can see my progress here. Based on your experience, do you think I am wasting my time, or do I have any chance of succeeding with this?

I’m not a tax lawyer, just a simple country lobbyist and political operative, but this is some impressive work in drafting a change from citizenship-based to residency-based taxation ( https://docs.google.com/file/d/0B7VqDyDIAgW2Ukhaam0xNzhpbFE/edit ). I see you met with Sen. Mike Lee’s staffer. Did you draft all this yourself or did one of the Congressional offices send it over to the Legislative Counsel for technical drafting?

Good work too in flagging Senator Lee’s preference, with some of his colleagues, for comprehensive tax reform. (Yes, I know, I know – there’s always talk about that in Washington but it never happens.) I don’t know what would be the prospects for switching to residency-based taxation on a free-standing basis but I have to assume the chances would be greater as a feature in a larger tax package. The same is true with regard to FATCA repeal. While drafting a repeal bill is a lot easier than the complex piece you’re working on (that’s already been done – I can provide it if you’re interested), the trick is producing the legislative conditions to get it passed. At the risk of sounding a bit partisan, all of this is likely to be harder, though not impossible, if Obama is reelected. On that score we’ll of course know soon enough.

At the George Mason seminar Prof. Harvey asked me if FATCA were to be repealed, what instead would be the answer to international tax evasion. My answer was, “Something else.” At present, we can’t say what that something else would be, other than it would be crafted in the course of getting rid of FATCA. Including the switch to residency-based taxation would be a reasonable feature of a FATCA replacement law designed to identify the tiny number of people who actually are real, live tax evaders as opposed to penalizing the vast majority of people who aren’t doing anything wrong but who stand to get hammered under FATCA.

That said, let’s keep in mind that while a switch to residency taxation would greatly alleviate expats’ headaches from FATCA (and FBAR), it wouldn’t fix the “global financial fishbowl” monstrosity of FATCA, DATCA, GATCA, etc. This relates to a point made by ConfederateH:

I object to the entire tone of this response. The entire gist is that somehow the solution lies within the system. Take the last few sentences:

“a few months ago a U.S. financial industry lobbyist in Washington told me that he thought FATCA would be repealed in the end, but it would follow the trajectory of the Catastrophic Coverage Act. That is, it would be pulled back after it had turned into a horrendously expensive global train wreck. My thought is, wouldn’t it be better to save the time and cost – not to mention the economic wellbeing of who knows how many individual persons – by undertaking that now, and not waiting until today’s foolhardiness had matured into tomorrow’s catastrophe?”

FATCA is the pimple on the wart on the cyst in the boil of the corrupted system. What about extraterritorial taxation? What about the war on terror and the war on drugs and the war for diversity? Fine, maybe if Romney gets elected and the system doesn’t collapse then FATCA might be repealed if we support the right lobbyists who know the ins and outs of the system.

Whoopie do, I have already been forced to renounce, and just repealing FATCA will hardly change anything materially for my children or grand children

I can understand the frustration. Enacting residency-based taxation, or for that matter repealing FATCA, won’t correct a whole lot of other things that in a more just world would get fixed. But we can say that if FATCA is successfully implemented – with DATCA and GATCA the inevitable consequences, and maybe more, as yet unimagined, impositions to follow – it would be a major step forward towards a very bad place. Conversely, shooting FATCA down in flames, and packing residency taxation into it in the bargain, would be a major defeat for that kind of agenda.

It’s a fair question to ask what should replace FATCA. I have no sympathy for homeland tax evaders or people who claim to live in places like Monaco to avoid paying taxes in the places where they actually spend most of their time.

What if banks were required to make some effort to determine the true residence of the beneficial owners of their accounts? If the account holder is non-resident, the info could be reported to national tax authorities for mutual exchange.

I think the effort related to Tax residency is not that hard. As an American, I have been Tax resident in NZ, and then Non Tax resident. It was easy to provide the documentation to both the IRD and the NZ Banks who have a different withholding tax for non residency vs residency. I am sure, like most government systems, it can be gamed, but frankly it is so easy to be compliant why expend the LCUs in the effort? The Tax structure seems fair enough (a Gross income is a Gross income, not an AGI with all kinds of credits, exclusions, exemptions, loopholes, IRAs etc), and so people probably spend less time trying to evade it, I would think.

Anything you could design to replace it, would be simpler than FATCA. As you know a lot of Americans could and do evade NY taxes by taking up residency in Florida, NY also has ways of making those snow birds that go south to Florida document where they are really residing, NY or Florida. Following Congresses logic, maybe NY needs its own FATCA instead. Florida banks would love that! That would make the Homelanders wake up!

NZBA chief executive Kirk Hope said the government’s engagement with its US counterpart on FATCA WOULD be welcomed across the financial sector.

“It’s a useful step towards sorting out a very thorny and expensive compliance issue for us. We understand US moves to clamp down on tax evasion by Americans living around the world. But without an inter-governmental agreement, the US law’s provisions are virtually unworkable,” said Hope.

“The agreement is expected to provide a practical way of meeting FATCA’s aims and allowing New Zealand financial institutions to comply. While our banks will still incur costs around designing and implementing customer identification and reporting systems, we see this as a positive step,” Hope added.

Meanwhile, Dunne added that having an intergovernmental agreement would “materially” reduce FATCA compliance. If New Zealand secures an intergovernmental agreement, this country’s financial institutions won’t have to provide information directly to the IRS.

“Rather, they would provide it to Inland Revenue which will submit the data on their behalf to the IRS,” said Dunne.

“This agreement will mean we can help to support FATCA’s objectives and play our part in dealing with international tax evasion, while at the same time ensuring that the compliance costs for New Zealand institutions are manageable.”

“Enacting residency-based taxation, or for that matter repealing FATCA, won’t correct a whole lot of other things that in a more just world would get fixed.”

First of all I appreciate your comments and your contribution here at IBS, I value a heated discussion.

But I remain very skeptical of your motives, and the issue is not “just worlds” it is about enslavement, murder and legitimacy.

As a long time Swiss citizen watching our country being assaulted tag-team fashion by the EU and the US in their jihad against the financial privacy of the very people they are supposed to represent I know just how duplicious and illegitimate these two empires are. I could talk about financial privacy, pharma, wars of empire, currency debasement, property rights, drones, free speech and more all day, all of which are far more egregious than the partial double taxation and regulatory overload that a bunch of expats are whining about. But I really don’t see the point of trying to work within the foul and corrupt system. You think that by playing by the rules we can make a difference, but when the PTB completely excluded Ron Paul from the political process they managed to eclipse even their non-vetting of Barack Obama. The system is in a process of moral and economic collapse and the empire is coming down. The vultures on K-street will be there picking the bones until the bitter end but I am looking out for my spawn beyond the USSA.

@Jim Jatras, Thank you for assuring me that I’m not wasting my time. I read the tax code, took notes and wrote the bill draft, all by myself.

I don’t think Obama would veto a bill for residential taxation if Congress approved it. I think the biggest obstacle is certain members of the Senate Finance Committee, from both parties, although it seems to me that such a bill would have more approval from Republicans than Democrats.

I cannot fix the world, but I’m trying to do what I can in this case. I agree that FATCA would have other disastrous consequences even if Americans abroad were no longer subject to it, that’s why my bill includes a repeal of FATCA besides providing residential taxation. In my bill, the only thing I keep from FATCA is form 8938, repealing the FBAR instead.

Regarding what to do with tax evasion, I think a much better alternative to FATCA is the EU savings directive. It is an agreement where countries report to each other the income from bank accounts received by residents of the other country. It has the following characteristics:1. The income from interest is reported, because that’s what’s actually taxed. The account balance is not reported.2. The agreement is completely voluntary for countries outside the EU, and there is no penalty if they don’t want to comply. Unlike the US, the EU did not impose its will on the world unilaterally, and it sought agreements only with alleged tax havens, because it didn’t think it was practical or worthwhile to seek agreements with the whole world. Still, a large number of alleged tax havens outside the EU accepted the agreement and already implement it: Switzerland, Andorra, Monaco, Liechtenstein, San Marino, Lebanon, Isle of Man, Guernsey, Jersey, Cayman Islands, Turks and Caicos Islands, British Virgin Islands, Anguilla, Montserrat, and others. Many of these are British territories and I suppose the UK was able to convince them to comply.3. If a country, inside or outside the EU, objects to reporting income because it would violate its bank secrecy laws, it may alternatively withhold tax on the income and send it to the country of residence of the account holders, without reporting their identity. The sending country is allowed to keep part of the tax too. In this case, the account holder may avoid the withholding tax by signing a waiver allowing the bank to disclose the income on the account. Account holders may also take credit for the withholding tax, potentially resulting in a refund, if they report the corresponding income on their tax return. The withholding tax is currently 35%.

Advantages of the EU savings directive over FATCA:1. It provides the actual information relevant for taxes, which is income. FATCA requires reporting account balance, which doesn’t make much sense. (Are the designers of FATCA interested in FBAR penalties or actual taxes?)2. It is easy to identify the residence of account holders, through their address on file. Citizenship is irrelevant.3. Transfers between financial institutions are not affected.4. It respects the sovereignty of other countries by requiring their consent.5. It respects the laws of other countries by allowing an alternative withholding tax instead of reporting information when this would be illegal.6. It is already implemented by all EU countries and many alleged tax havens.

Therefore, I think the US should abolish FATCA, and if it is honestly interested in fighting tax evasion and not in FBAR penalties, it should seek an agreement with the EU to implement the savings directive. The US could also seek its own agreements directly with countries it considers tax havens. It doesn’t make sense to impose a tax evasion law on the entire world, as most countries do not attract tax evaders because they already tax income generated there.

What about using this popular media spin on the plight of famous people in the world who may have a US FBAR and FATCA compliance issue because of US birth or parentage – in order to bring the absurdities to light and create conversation in the mainstream?

I am generally in favor of a “kitchen sink” approach: anything and everything that undermines FATCA’s credibility — throw it at them.

With any issue, the question is: who’s your target audience. With whom is the issue intended to resonate? For example, the IBS Appeal re an Ottawa-Washington IGA is intended to strike a chord with Canadians concerned that their country’s interests are being sold out (if we could get it placed where enough people could see it). Or take the Sen. Rand Paul + 3, Boustany, or Reichert letters, which are designed to address harmful impact on US citizens and institutions.

Re famous people, never underestimate Americans’ (maybe other people’s as well) penchant for celebrity-worship or abysmal level of knowledge about the outside world. Certainly using these examples to show the patents absurdity of treating these people as “Americans” might ring with some people who follow the lives of various luminaries. The questions would be who and where they might be.

I like this idea. The ‘glass ceiling’ that is over USP’s due to citizenship based taxation should be highlighted as I have done in today’s, and yet another attempt to get Business in Vancouver to cover FATCA. An excerpt:

“Perhaps this further bit of information may get your attention. Under existing US tax law, if a Canadian is deemed to be a US person, that person is required to report all information on their Canadian bank accounts over a certain threshold to the US Treasury, which also include those for which they may only have signing authority. Also, US persons who own a 10% or more share in a Canadian company must also provide the same Foreign Bank Account Reports to the US Treasury. This requirement to report the private information of Canadian entities to the US Treasury, and under FATCA to the IRS, extends to strata corporations, industry associations, or any entity that places a US person in a treasury position. This is especially problematic because most US persons in Canada don’t know about their requirement to file US taxes, nevertheless their current requirement to file FBAR’s. More troubling, is the US government appears to be intent on identifying US persons in Canada (through FATCA) and penalizing them for their transgressions.

The US government has had a long history of being negligent in their duty to inform their non-resident citizens of their requirement to file US taxes. Many US persons in Canada don’t even know they are US persons! For example, a child born in Canada to a US citizen born in the US is under most circumstances considered a US citizen. All US green card holders in Canada are. Some ‘snowbirds’ may be considered US persons for tax purposes, for having spent a little too much time in the Arizona sun. Has Business in Vancouver asked the individual(s) in charge of its accounts if they are a US person? How would Business in Vancouver magazine feel about turning all of its bank account information to the US Treasury and IRS?

Beyond burdening the cost of implementing FATCA to each and every Canadian taxpayer in Canada, the Canadian Bankers Association explains how FATCA may effect non-US persons in their relationship with their bank:

“I am not a U.S. person. What does FATCA mean for me?

The majority of Canadians are not U.S. persons and, in most cases, FATCA will have little impact. If you have an existing account and there is an indication that you may be a U.S. person, or if you are opening a new account, your financial institution may ask you to provide additional information or documentation to demonstrate that you are not a U.S. person.
If you choose not to provide this additional documentation upon request, at a minimum, your financial institution may be required to withhold a tax of 30% on U.S. source payments1that you receive and send this money to the IRS.””

I got a response to the above letter. The editor said that he’d get together with their finance columnist this week to work on the ‘angle’ they’d be taking to cover the FATCA story. If we can see one positive coming out any Department of Finance announcement having to do with FATCA, it’s that it’s taken our warnings out of the realm of what sounds to many like a conspiracy theory to FATCA actually being a real threat. Would the reporter from BIV be free to contact you?

Re “Would the reporter from BIV be free to contact you?” Posilutely! I am, as we say in Spanish, disposable. 202 375-1007 cell. We also need to have a couple of Canadian citizens and maybe some expats/renouncers too. Any volunteers? Does the reporter or editor have the IBS Appeal on the IGA?

Someone else (probably Jim Jatras) can likely provide a better technical explanation — but I think #4 means the IRS will declare as “US income” any transaction that goes through a US account — even if it’s only on its way somewhere else. There are a lot of global financial transactions that funnel through something American somewhere — this is the IRS’ attempt to get its hands on 30% of that money just in case there’s an American at the other end. The onus is on you to prove that you ain’t one. Someone correct me if I’ve got this skewed somehow, but I thought an example of this might be some transaction that goes through PayPal.

#4 is something called “passthru” payments. Even some of the key people involved in drafting FATCA such as Richard Harvey were opposed to this being in the final legislation. My understanding is this issue is an the back burner at the very least for several years.

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